ESG – Short for Environmental, Social and Governance are the three pillars of every ESG Equity fund that give investors an opportunity to invest in a socially responsible fund whose secondary purpose (primary being capital appreciation) is to tackle issues like global warming, climate change, etc.
These days, investors are becoming cautious about where they are investing their hard earned money. Global warming, climate change, carbon footprint; these are some of the common problems that openly addressed globally. People have now started to realize that it is necessary to take the necessary precautions of our environment rather than ignoring it in the name of industry progress and development.This has led to the birth of ESG funds.
An ESG fund is an equity oriented mutual fund that is supposed to only invest in those marketable securities that are highly sustainable. ESG funds usually refrain from investing in stocks of companies that are known for threatening the welfare and the community as well as the environment. ESG funds avoid investing in tobacco oriented companies or companies that are notorious for having a larger carbon footprint and have a reputation for possessing unsustainable repertoire.
ESG funds add stocks to their portfolio by evaluating companies based on their environmental (E), social (S) and governance (G) norms. The ESG in ESG fund stands for Environmental, Social and Governance. A lot of investors are shifting to ESG investing because ESG funds generally invest in sustainable companies which are expected to have low investment risk associated with them.
Invest in a sustainable future with ESG funds
Now that you know the importance of ESG investing and are keen on seeking capital appreciation in a more environmentally conscious way, here are some of the ways ESG funds can help you with your long term goals. ESG investors can invest in these sustainable funds either by making a onetime lumpsum investment or choosing systematic investing through SIP. A onetime lumpsum investment is usually made at the beginning of the investment cycle. However, the problem is that with lumpsum investments, one ends up exposing their entire investment amount to the dangers of volatile markets right from the beginning. On the other hand, thanks to the introduction of SIP in mutual funds almost everyone even with small amounts can invest without burning a hole in their savings. Systematic Investment Plan, commonly referred to as SIP in mutual funds, is an easy and hassle free way to invest in mutual funds. Investors need to be KYC compliant individuals in order to invest in mutual funds via SIP. Even ESG funds allow the option of SIP investment as well. Once investors complete one time mandate with their bank and decide the monthly SIP investment amount, every month on a fixed date a predetermined amount is debited from your savings account and electronically transferred to ESG fund. This is good for those who wish to inculcate the discipline of regular investing.
ESG funds give investors an opportunity to invest in a sustainable future by giving them the option of choose a diversified portfolio of stocks of companies which are following ESG norms. However, it is essential for the investment objective of the scheme to align with the of the investor. ESG funds predominantly invest in equities and we all know that equity related instruments are vulnerable to constant market upheavals. Hence once should understand their appetite for risk before investing in ESG funds. It is also a good idea to consult a financial advisor or a mutual fund expert who might do a better job in further explaining the role of ESG funds and whether it suits your investment portfolio.